Sirius XM Holdings Inc (SIRI) 2014 Q4 法說會逐字稿

Good morning, and welcome to the SiriusXM's fourth quarter 2014 earnings conference call. Today's conference is being recorded.

(Operator Instructions)

At this time, I would like to turn the conference over to Hooper Stevens, Vice President, Investor Relations and Finance. Mr. Stevens, please go ahead.

Thank you, and good morning, everyone. Welcome to SiriusXM's fourth quarter and full year 2014 earnings conference call. Today Jim Meyer, our Chief Executive Officer will be joined by David Frear, our Executive Vice President and Chief Financial Officer.

At the conclusion of our prepared remarks, management will be glad to take your questions. Scott Greenstein, our President and Chief Content Officer will also be available for the Q&A portion of the call.

First I would like to remind everyone that certain statements made during the call might be forward-looking statements as the term is defined in the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based on management's current beliefs and expectations, and necessarily depend upon assumptions, data, or methods that may be incorrect or imprecise. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. For more information about these risks and uncertainties, please use SiriusXM's SEC filings. We advise listeners not rely unduly on forward-looking statements and disclaim any intent or obligation to update them.

As we begin, I would like to advise our listeners that today's results will include discussions about both actual results and adjusted results. All discussions of adjusted operating results exclude the effects of stock-based compensation and certain purchase price accounting adjustments.

With that, I will now hand the call over to Jim Meyer.

Good morning, everyone, and thank you for participating in today's call. SiriusXM turned in an excellent performance in 2014 on all fronts, and we are excited about the guidance we've given you for the continued growth in 2015, and the many long-term opportunities that are before us today.

In 2014, we originally projected that we grow our subscriber base by 1.25 million, but we actually delivered growth of 1.75 million net new subscribers in 2014, ending the year with 27.3 million paying subs making us one of the larger subscription media companies in the world. We added over 0.5 million in the fourth quarter alone, which incidentally marked the biggest fourth quarter we have ever recorded since 2007.

Our revenue increased by 10% to just under $4.2 billion. Combining revenue growth, high variable margins and tight expense management, we grew our adjusted EBITDA by 26% to nearly $1.5 billion, and we converted more than $1.15 billion of this into free cash flow, up 25%. Once again, we have beaten all of the guidance we gave you for 2014.

We believe growing our free cash flow, and even more specifically, our free cash flow per share will enhance value for our shareholders. By this count, we also had an exceptional year growing free cash flow per share to about $0.20, up 36% from 2013. We delivered this growth with a combination of higher cash flow and a lower share count, as we returned capital to our shareholders via stock buybacks. You should expect this combination again in 2015.

Our subscription growth in 2014 certainly benefited from growth in new car sales which were up 6%, a slightly higher penetration rate, up 2 points to 71%, significant growth in pre-owned volumes, and a very strong retention performance with churn coming in at 1.9% for the year. New and used car conversions reached all-time highs in 2014, and our trial funnel heading into the first quarter stands at 7.4 million, up from about 6.5 million at the same time a year ago.

These strong metrics and our outstanding subscriber growth point to a very healthy business. Our content-driven service is something that the carmakers overwhelmingly support, and more importantly, consumers increasingly demand.

The year is early and we have 11 months to go, but we are off to a good start. That coupled with a strong expense controls, and we are well-positioned to achieve our guidance this year. More ever, it is very clear to me that in the next few years we have plenty of runway ahead of us to continue growing our business on all fronts.

Our success has proven that consumers are willing to pay for an easy-to-use package of great content in the car. We know each and every automaker's plans for satellite radio installations. While we don't know exactly what new-car sales will be, we are very confident in maintaining a high penetration rate.

This new -- this high new-car penetration rate, paired with the natural turnover of the auto fleet means that our enabled vehicle count will continue to grow rapidly. At the end of 2014, this number was just a shade over 70 million enabled vehicles. We expect this to cross 100 million by the end of 2017, a near 50% increase in just three years.

There are many ways we plan on capitalizing on this. We are increasing our ability to offer trials in the used-car market, now at over 15,000 participating dealers, and we are finding more information on subsequent owner transactions.

Our service continuity program which we implemented in mid 2014 ensures that existing subscribers who buy a different vehicle have an easy time moving that subscription over. To drive greater household spending and increase retention, we are testing household plans as an alternative to per radio pricing, and we are building new ancillary revenue streams with weather, live traffic, and our growing connected vehicle business which provides safety, security and convenience features to end users.

Since we have contribution margins of 70%, our objective is to increase revenue and the resulting free cash flow from the growing base of enabled vehicles. We intend to be well-positioned to succeed in a world of fully connected cars.

We think that nearly all new cars by the end of the decade will have some form of connectivity. While more competition is inevitable, SiriusXM's strategy is to turn this connectivity into a tremendous positive for our business.

I want to point out something, our main competition has been and will remain free ad-supported entertainment. This doesn't change in the connected vehicle. So our focus will continue to be on convincing people to pay for a premium experience with great content that is extremely easy to use.

Let me be clear, we have major efforts that are now well underway to avail ourselves of the enhanced capabilities of connected vehicles to supplement our satellite network, and this work will be the next step in solidifying our competitive advantages. The joining of our IP and satellite technologies will let us offer more features to subscribers, and will help us better understand and manage our customer relationship with them.

Another under-appreciated asset we have is the unique value of our network and spectrum. Today they provide tremendous value to us for our core service. But in the future, we will have significantly more flexibility, as we adopt wide band radios and increase ancillary uses of our nationwide system. We are extremely excited about the long-term benefits to our business of this growing network flexibility and in-car connectivity.

In the near-term, you will see us implement an all-new streaming product including new apps for iOS and Android, and a new web experience. Quite frankly in my opinion, our apps weren't good enough, and we needed to put more resources into making them better. These new SXM apps are the result of a year-long effort to completely re-architect our streaming platform, bringing more services in-house, and giving us flexibility to push out more frequent updates and enable our service for additional platforms.

Our subscribers will be able to easily discover content and search through SiriusXM's vast archives of entertainment. Users will also see improved speed when signing in or changing channels, as well as enhanced reliability in low bandwidth situations. We are beta testing these new apps now, and we hope to roll them out to our broader subscriber base within the first half.

Being the leader in curated, exclusive and compelling content is central to our Company's mission. We will continue to add and refresh our programming line-up.

We know the variety of our bundle, music, sports, and talk is what attract subscribers and convinces them to pay. In 2014, we solidified our leadership in women's programming by carrying the Ellen Degeneres show, producing a daily exclusive show with Jenny McCarthy, and adding The Today Show. Also with NBC News, we launched broadcast of Meet the Press, and the Nightly News with Bryan Williams.

In sports, we continue to improve our offering. We launched a channel in conjunction with Bleacher Report, and added a new exclusive daily show hosted by Steven A. Smith, the popular ESPN broadcaster. We also recently launched SiriusXM Insight, a new talk channel that has already gathered significant national media coverage.

We also continued our track record of music discovery, giving first national airplay to acts such as Vance Joy, Hozier, Cole Swindell, and 5 Seconds of Summer among many others. We launched three new music channels with unique formats not heard on traditional radio, Venus which is rhythmic pop, Y2Kountry, which is country hits from the 2000s, and Utopia which is a dance hits channel. We also began co-producing two new and exclusive music shows with YouTube, the YouTube 15 and the YouTube EDM 15.

We think SiriusXM is unique in the discipline we bring to investing and using our free cash flow. We start with looking at our existing business to make sure we are investing in all the projects needed to ensure the business is well-managed and poised for further growth. Of course, this includes frequent new investments in programming as I mentioned.

But we are also making substantial R&D investments that we expect to yield returns in the future, consolidating the OEMs around a single chipset platform, expanding network capacity, adding new in-car features to make the radio experience more enjoyable and easier to use. And finally, significantly reducing the form factor of our satellite radio modules and their costs making future OEM installations easier and cheaper. These investments, along with our focus on IP connectivity will give us the most powerful entertainment platform in the vehicle in my opinion.

We also look continually at external investment and merger and acquisition opportunities, businesses that would be a logical fit, growing businesses with scalable models. And, of course, investments that result in long-term accretion to free cash flow per share and other key metrics. These are extremely hard to find, but we do value having dry powder should such opportunities arise in the future.

We also see our own stock as an investment. We believe it represents a good value today. We spent $2.5 billion last year to retire 739 million shares, which was roughly 12% of our outstanding share count at the beginning of the year.

I believe you would be hard-pressed to find many companies with such a disciplined approach to rewarding shareholders. We have $1.7 billion of remaining buyback authorization from our Board of Directors. Given our low leverage and growing free cash flow, we have a sizable ability to continue returning capital to our shareholders.

So there you have it. I am very proud of the hard work of everyone on our team. We executed our plan, and then some in 2014. We have set goals to further grow our business with more subscribers to produce more cash flow in 2015, and we are taking all the necessary steps to invest in the long-term platforms needed to produce a very durable franchise in the connected car.

With that, let me turn it over to David.

Thanks, Jim. SiriusXM finished a very strong year with excellent results in the fourth quarter, and we have [given] guidance for solid continuing growth in 2015. Our fourth-quarter revenue and adjusted EBITDA were at all-time highs, and free cash flow set a new fourth-quarter record.

Fourth-quarter revenue was up 9% over the prior year as total subscribers grew 7% to 27.3 million, and self-pay subscribers also grew 7% to 22.5 million. With the addition of 577,000 paid subscribers, we had our best fourth quarter for subscriber growth since 2007.

Contribution margin increased by 80 basis points year-over-year to 70.6% in the quarter, driving adjusted EBITDA to $381 million, up 17% against a very strong comp in the fourth quarter of 2013. This represented an EBITDA margin of close to 35%, up 240 basis points year-over-year.

We converted 87% of our EBITDA into free cash flow which set a new fourth-quarter record at $331 million. Free cash flow per diluted share climbed by 20% to an all-time quarterly high of $0.059, up from $0.049 in the fourth quarter of 2013.

Our full-year results were ahead of expectations by virtually every measure. Total and self-pay net adds at 1.75 million and 1.44 million beat the heck out of our original guidance by 40% and 15%, respectively.

Better than expected new car sales in 2014 boosted trial starts and conversions. Our used car program ramped solidly, and our churn rate was better than expected, all of which attributed to the upside.

Full-year 2014 revenue was up 10% to nearly $4.2 billion. Contribution margin expanded by 90 basis points to 70.8%, slightly ahead of the historical norm of 70%.

Subscriber acquisition costs in 2014 as a percentage of revenue were just 11.8%, easily the best in the Company's history, an improvement of nearly 300 basis points even as new car sales rose by 6%. Adjusted EBITDA margins of 35% were up more than 4 full percentage points from 2013, driving 26% growth to a record $1.47 billion.

We continue to convert nearly 80% of adjusted EBITDA into free cash flow. Free cash flow grew 25% to $1.156 billion, and we returned more than double our free cash flow to shareholders as stock buybacks reached $2.5 billion in 2014, repurchasing 739 million shares. Leverage was 3.1 times EBITDA at year-end, roughly unchanged from 2013, as the 26% growth in adjusted EBITDA offset an $900 million increase in debt. Interest coverage remained very strong, at 5.5 times for the year.

For 2015, we expect continued growth in subscriptions and in all of our key financial measures. We are projecting net subscriber additions of 1.2 million, and revenue of $4.4 billion, adjusted EBITDA of $1.6 billion, and free cash flow of $1.25 billion.

We believe subscription-driven satellite radio is the brightest spot in the media landscape. We have a recurring revenue model with strong monetization per user, high margins, a rapidly growing fleet of satellite-enabled vehicles, and a rapidly expanding subsequent owner opportunity, as satellite-enabled vehicles begin to turn over in the previously-owned car market. Those revenue and growth drivers, combined with tightly controlled fixed costs, and new opportunities from the connected vehicle business will continue to produce strong, growing free cash flow in the coming years.

Lastly, the recent spectrum auctions underscored what we all know, spectrum is valuable. With the R&D investments Jim mentioned earlier, our 25 megahertz of nationwide spectrum can be redeployed to generate even more growth in the future.

And with that, operator, let's open it up for questions.

(Operator Instructions)

Barton Crockett, FBR Capital Markets.

Okay, great. Thank you for taking the question. Two things I guess around new technologies that you are working on, the comment about spectrum and also the app. I think with spectrum, you are emphasizing, Dave, the ability to take this 25 megahertz, redeploy it in the future. Could you give us a sense of how far away is this future that you're thinking about? I mean, is this very, very long-term, over a decade plus? Or are there opportunities nearer term to do something with that, that could be interesting and meaningful?

So I will start, and then David will jump in. It is obviously an iterative and long process, okay? But we've already taken steps to get it underway.

As you know both the strength, and kind of I will call it the frustration of our model, is that it takes OEMs longer to implement a change in product, than what people are used to in an after market product. But when they change, they stay focused and change, and it goes for a long, long time. And so, we are in the middle of that transition. And then, there are still pieces within our spectrum. We are just figuring how to use more -- either more efficiently or through new technologies are enabling us to open those up. And David, do you want to add some stuff there?

I think, Barton, it is not within 5 years but it is within 10.

Okay, and when you look at this, is this something that would be -- will require a lot of investment at the outset, that maybe at that point would be a redraw on the model? Or are there ways to get value here without necessarily changing the EBITDA trajectory?

I don't think the investment that is-- we have already undertaken the investments required to go there, and I don't think you should think of there as being some incremental investment outside of our normal business model.

Okay. And then I mentioned the apps, which in our family we are very active users of the apps. But my sense is that broader public is not so actively using their apps. But this happens to be the way it seems people want to consume entertainment more and more. What do you think needs to happen to increase awareness and usage of the apps? And strategically, how important do you think that is for Sirius long-term?

So look, I think the trend is clear, and that is that broadcast, satellite broadcast and streaming are all going to coexist for a long, long time. Okay? And so, I think people are going to listen to content in a variety of ways. And frankly, I think the issue is going -- what is going to be more important than the method of delivery is making it simple, easy, and in our case attractive enough to get people to pay. Okay? And so, that's the way we are focusing.

I have to tell you, I am not disappointed with the amount of people that use our app today, and we charge for it. Okay, and let's be clear. So it is not something that we just put out there, and say just sign up and take it. Our strategy has been to make it a upsell from our core subscription.

We will see where that goes in the future. Right now, what I am more concentrating on is the front-end of the equation. And that is making sure our technology, our platform, and our apps are as good as they need to be to deliver the experience we want to deliver to customers. And I think, if we want more used at any point, that's just a factor of how hard we drive our marketing engines.

Okay, great. I will leave it there, thank you.

Jessica Reif Cohen, Merrill Lynch.

I have a couple of questions. The first is on -- Jim, you mentioned -- you are testing household plans. Is that to -- for existing subs? Is that a separate plan, how are you pricing that?

We are testing -- we are going to test a lot of things, Jessica, and we were -- it is funny we had a debate on this yesterday. Look, I think an area of growth for us is -- I think I will get the statistic roughly right, which is I think close to 80% of households in this country have more than one vehicle. And I think -- yes?

More than two --

Have more than two vehicles, and I think it's in the low 20% of our subscribers have a matching subscription count. And so, while you can argue either measurement. What you can't argue is how vastly wide they are, and that to me spells opportunity. And I think -- at least our premise is, the way to get at that opportunity is with simple, easier family plans, but we've got to walk through that carefully.

So that it doesn't -- it does -- it both benefits our ARPU and benefits -- I mean, benefits our revenue and benefits our subscriber count. So we are testing it in more than one acquisition funnel. This is going to take a while, because the one thing I've learned in this business, you've got to wait for a pretty long time to watch these results go through, before you can truly rely on the metrics. But I think we're in an area that in the future is going to provide benefit to us.

Great. I have two more questions. So the data -- leverage is just 3.1 times versus the target you stated of 4. How are you going to reach your target leverage either through M&A or buybacks? And any direction you want to talk about, in how you would spend the money?

Well, we wouldn't say that we are necessarily eager. We certainly aren't holding back from getting there. But the other thing we don't necessarily want to do is, in the absence of seeing a near-term acquisition opportunity that would get us there, we don't necessarily want to just lever up and foreclose sizable acquisitions by virtue of doing that.

So I think that we see an ability to operate the business at what we think would actually be very conservatively at 4 times leverage for the long-term. But we really don't want to foreclose what we -- what are just a lot of different investment opportunities we keep looking at. So I think you should -- we're really not in a rush to get there, but there is no hesitation in going there either.

Great. And one last one for Scott. You guys have talked about in the past and even today on the call -- well, you talked in the past about West Coast drive time focus. Jim talked about the women's programming and country music. Is there another target area where you think you can really make a dent in something that wouldn't move the needle in one way or another?

Sure. One thing you brought up the West Coast and I just wanted to give an update on that. I'm not sure everybody realizes, our Foxhole channel led by Jamie Foxx is permanently launched out on the West Coast and going. San Francisco has become a place that we've grown a little bit with Bleacher Report, having a live show out of there. As well as business radio with Randi Zuckerberg and Dot Complicated, our show on that channel is out there. And I'm sure you can expect the logical extensions from Entertainment Weekly and Hits 1 out in LA. So that is underway --

And more to come.

And more to come, and Nashville as we all know is there in Austin and a few other markets. I think right now, it is less about geography with the exception of the West Coast, as is it opportunistic where ever it is. The great thing about the way media and the digital world is, interesting people and interesting things can pop up anywhere in the country or the world. So it is really about that concept.

Last point is, are there genres and other things to look at that I want to grow, that there is opportunity? Sure. I think in the tech area, I would like to get a little deeper. Our TechCrunch radio keeps getting some attention. The public radio spectrum hasn't really been touched for a while, so that was Insight. So we're just going to keep looking at those kind of opportunities and try to grow from there.

Great, thank you.

Vijay Jayant, Evercore ISI.

Thanks. If I could, two please. You mentioned not foreclosing opportunities on M&A. Would music label be a strategic opportunity broadly speaking? And then, just an economic question. This is the first time we have seen oil at such low levels. Has it changed take-up rate, given consumers are going to save $750 annually, is that driving incremental subscription at all? Is it too early to call that? Thanks.

So I would start with the second question which is, my personal opinion is low oil prices are great for our business. And the number one reason it is great for the US car industry. And so, in terms of how customers are behaving, I think it is clear they are behaving a lot better than they did in 2008 and 2009. There's no question that there is somewhat of a recovery underway, and I think every index shows there is at least been a rise in confidence. I don't think we've seen any material change that we can point to because of this change.

In terms of the areas we are looking, we continue to look. I quite candidly don't understand why a label would make sense for us, for instance, but because their business model is entirely different than ours. If you are a label and you want to make money, you want mass distribution of your product on every platform. And by the way, so do major artists. And what we are looking for is having all of that content, and then our own suite of very unique and compelling content. So I wouldn't say never, but I would say in the things I look at, it's not on the top of our list.

Great. Thank you.

Ben Swinburne, Morgan Stanley.

Thanks, good morning. For either of you, can you update us on the used car activity in the quarter? It looked like it was up nicely year-over-year, so any update on trial activations in Q4? And then, how are you guys working to improve your conversion on used? I mean, you could talk a little bit about some of your initiatives there. And then, I just had a quick follow-up on the telematics side.

Okay, so the development of the used business continues, honestly a little bit ahead of our expectations, that funnel development is strong, that we continue to sign up new dealers. We continue to source new information on ownership. And so, we continue to set records in terms of the level of trial -- not only activations but conversions in that channel. I don't see that stopping in the next several years. I think we have long-term sustainable growth from the used car business.

We are very happy with the conversion rate that we've got in the subsequent owner business today. That being said, we continue to slug it out every day, looking at our campaign strategies, looking at the operational processes that underpin them. And we continue to drive, like we do in honestly in every part of the business, look to drive excellence in the results. But at this point, we are thrilled with the results out of the used channel.

Yes, and I think it is safe to say we surpassed the guidance we gave you for 2014 in that area, right? I think one other point, Ben, that is really important is those 70 million cars that are out there, that I very specifically told you're going to grow to 100 million in three years, I can tell you the vast majority of those 70 million are never going to see connected technology. I have my doubts exactly how many of the next 30 million will have this connectivity that everybody talks about.

There is no question where the industry is going. But I think when you also look at the -- what's out there in the fleet, and you compare that to the 230 million cars that are on the road, I really like where this is going in terms of our opportunity to continue to market into that growing base of enabled vehicles with our service. I think that is something investors should really focus on, okay?

That this change, and while I spent a lot of time in my comments talking about it, because it is clear to me where it's going, this is going to take time. This is not going to happen in six months. This is not like when a new smartphone comes out and everybody jumps to the new platform. It will not work that way.

Yes, make sense. And then just on -- when you bought Agero, Jim, I think you said, one of the reasons you bought it was the OEMs wanted you to, or thought it was a positive for your business and your relationship with them. What is the latest there? Have you -- have you had the OEM wins that you expected, and have you had the product take-up that you expected? And where do you go with telematics in general, maybe over the next year to ring-fence the business better with the OEMs and Dashboard?

So number one, Ben, I will tell you that there is absolutely zero that I've seen since we acquired Agero that would have changed my mind on the original reason we bought it. Number two, I guarantee you, right now we have our head down, okay? You can assume what that means with the OEMs, but I guarantee you will be hearing more about this space, if not by the middle -- by summer, certainly late summer.

All right, thank you.

Kannan Venkateshwar, Barclays.

Thank you. Just a couple of questions. Of course, there is when you look at the whole buyback program that you guys have undertaken, does it make sense at some point to essentially buy your shares back at a discount by buying Liberty Media shares? And then secondly, when you look at -- the marketing expenses this quarter more operationally as a percentage of revenue it seems to have stepped up quite meaningfully. So just wanted to see if there is something there in terms of trend line, if that is something we should expect going forward?

On the last question, there's nothing special about the fourth quarter that would change the trend, that we did run a number of initiatives in terms of testing out various strategies with radio, as well as television advertising in the quarter. And those are things that we do from time to time, so it was a little more concentrated this year in the fourth quarter. But nothing that would change the trend.

On Liberty, so I hear that, right? People ask that question and -- buy your own stock at a discount by buying Liberty, and I guess, it is theoretically possible. I mean, we all know how the valuation models work, and investment in Liberty would be unconsolidated asset, that you would presumably value our operating cash flows, and then add on unconsolidated asset [value] into the valuation. There is no current consideration of doing that kind of thing, and we would, of course, have to look at why Liberty trades at a discount to its net asset value. It seems that it always has, but it is a theoretical possibility, I will grant you that.

All right, thank you.

John Tinker, Maxim.

Thank you. Could you just give us a quick update on your tax NOLs, and how long it think you will be able to keep that high conversion of EBITDA to free cash flow?

Okay, I think based on current outlook, we will become a taxpayer in 2019, I think. So we will have the benefit of the full tax shield for -- through the end of 2018 anyway.

Yes.

Just another quick question on the programming side. At one point, you were quite focused on -- I think you touched on all the bases of the expansion, women's and so forth. And one point, you were quite focused on Hispanic, where is that at the moment?

So I want to be clear, we haven't lost our -- we haven't given up on Hispanic. I've had some people ask me that, and that's simply not true. What I will tell you is, we tried some things and they didn't work. We thought Piolin, for instance, would be something that we could monetize, and I give us a lot of credit. We tried it, we put our heart behind it, and it didn't work, and we cut our losses, okay?

That doesn't mean Piolin is not a great talent, he is just a great talent in free radio. It didn't turn out that people were willing to pay for his. You will continue to hear more from us in the Hispanic area, and we are continuing to work on it. Scott, you want to add anything?

Yes, so a couple things. One is when we do the research we do, and look at different segments of programming, the bilingual, bicultural Hispanic today looks a lot like in their case what all of our subscribers look like. So we have gone with our traditional strategy of trying to find out what would be attractive to that audience, but also to our mainstream audience. So the first programming launch in that area will be Pitbull at his radio channel, which will have bilingual material in that. And he was with -- at us Super Bowl launching that and all that, so that will be one prong.

And you should expect other major Latin artists that crossover to both segments to be part of this process, because that will be more consistent, and a natural fit with what our existing programming line-up is. In addition, you should assume as we do with MLB, we have Spanish broadcast, we have the Super Bowl and other things from the NFL in Spanish. And in the sports area, soccer included, you should expect to see that kind of programming continue.

Thanks.

James Ratcliffe, Buckingham Research Group.

Thanks for taking the question. Two, if I could. One on the G&A line, there was a meaningful step down in the quarter. I am wondering if there's anything particular driving that? And secondly, to dig ARPU for a bit. Can you update us on your thinking about the relative appeal of monthly subs with higher ARPU, but probably higher volatility versus annual contracts, and the ARPU volatility trade-off there? Thanks.

Yes, on the G&A front, we actually got some insurance recoveries in the quarter which helped move things down a little bit. Other than that, I don't think there was very much remarkable in there, and the insurance recoveries were a few million dollars. It wasn't a real big item.

On the ARPU front, it's -- we talked about this before. It is not the way we manage the business. It is a calculation, right? And so, Jim and I actually had a meeting with some of our people yesterday talking about what we are going to emphasize in selling this year. And one of the things that just doesn't factor into that is the discussion, is an ARPU target. And the reason is that every good salesmen always find ways to make their target. And for us, we are looking to as Jim said, maximize the free cash flow out -- that we can drive out of the enabled fleet.

And so, we are looking to sell as many plans as we can. That with the second owner market that if we were very successful in the short run selling into -- sorry, the second car market, that second car in the driveway that that could actually force ARPU down. But it would be a good thing for the business, because we would be driving more total subscriptions. So to be honest, ARPU is just not something we manage.

So Jim, I think it is a good question that you are asking about kind of -- how do we -- which -- do we see a higher revenue profile over time from an annual customer versus a monthly customer. And you are absolutely right, monthlies churn higher. And I will tell you, we have a lot of stuff underway, and I don't think we've concluded yet.

I don't think the answer is going to be clear. I think it is going to be messy, okay, as we work our way through it. But Dave is100% right, we are trying to maximize revenue and cash flow, and ARPU is the number that falls out from where we end up, not the other way around.

Great, thank you.

Thanks, James, and thank you all for participating today. Talk to you soon.